Use goal-based investing to achieve your lifetime goals

Most of us make investments with a single-minded focus on maximizing returns. This often leads to investment mistakes like trying to time the market. Fear and greed become the driving forces so that when markets turn volatile, investors tend to pull out their money or they typically increase their investments when the markets are already over-heated. This results in ill-planned and directionless investing.
Investors should, instead, follow the path of goal-based investing by first identifying and quantifying their short-, medium- and long term financial goals and then tailoring their investments to meet these goals, based on their risk appetite and asset allocation.

Goals based investing

Every individual has multiple goals that he works towards in life such as taking a vacation abroad, or buying a car or house, or saving for a child's education or building a retirement fund. However, in order to fulfill these needs and aspirations, he needs to make his money work in sync with these goals. This is possible by adopting goal-based investing. Instead of following the traditional approach of first creating an investment portfolio and then using the returns from it to meet goals as they arise, it is more effective to first identify an investor's goals at different stages of his life and to then fund and invest for each goal separately based on the time horizon and risk profile. By setting tangible targets instead of saving blindly, goal-based investing motivates individuals to invest for their goals. It empowers them to realistically assess their current financial situation and plan their investments more precisely so that they start saving early, avoid debt and also match their asset allocation to the goal's time horizon and therefore, take the optimum amount of risk.

Goal investing process

  1. List financial goals
  2. Classify & prioritise goals on a time horizon
  3. Quantify future cost of each goal & current financial status
  4. Assess risk profile of each goal
  5. Allocate investments & create goal-specific portfolios
  6. Periodically monitor Investments

Goal-based investing helps investors to achieve their financial goals by mapping their investments to their goals keeping in mind their time horizon, risk profile, inflation and other factors such as their income, age and financial responsibilities. Investors can bucket their savings in goal-specific portfolios and regularly monitor their progress to ensure they meet their financial targets and fulfill their needs and aspirations. Mutual funds offer a variety of funds across asset classes that investors can use to achieve their financial goals.

An Investor Education and Awareness Initiative by Mirae Asset Mutual Fund.
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